Believe it or not there is such a thing as Sudden Wealth Syndrome (SWS) and if you’re reading this, you may be wondering how to manage sudden wealth. I can imagine that many would want to catch this syndrome – it is definitely one of the better ones to get, in the grand scheme of things.
Sudden wealth syndrome is a type of distress or anxiety that afflicts individuals who suddenly come into large sums of money. This syndrome can cause people to make decisions they might not have otherwise made. Sudden wealth syndrome symptoms include feeling isolated from former friends, feeling guilty about their good fortune, and extreme fear of losing their money.
I can hear you say in the back of your mind, that this would never happen to you or the sheer elation of becoming wealthy over a few weeks or months would paper over the cracks of any anxiety you might feel.
The reality is that it impacts many people in different ways – and of course there are many ways of becoming suddenly wealthy, including:
- Inheritance or a gift from family
- Selling a private business (this can be particularly complex)
- Winning the lottery
- Huge investment returns from assets such as land, buildings, company stocks or newer assets such as crypto currencies.
Individuals can avoid Sudden Wealth Syndrome by planning ahead to ensure that their wealth is spent wisely, avoiding making quick decisions about how to spend their money, and maintaining discretion about their sudden influx of wealth. Read on to find out how it is best to manage sudden wealth.
Planning ahead to manage sudden wealth
Although it is not possible to prepare for every type of financial windfall, situations such as inheritances can be planned ahead of time. Wealthy parents should organise family meetings with their adult children to discuss how they would like their wealth distributed when they die. This type of pre-planning can also help resolve areas of potential conflict. For example, wealthy parents might inform their children that they have established a trust for each child that can only be accessed once both parents have died.
This can be particularly important when parents hit their late seventies or eighties, and may have mild symptoms of dementia or other similar ailments. Conflict can easily happen as families come to terms with how best to organise assets, payments, bills and other types of short-to medium-term financial requirements.
When dealing with sudden wealth, do not make rash decisions
It can be tempting for individuals to go on an immediate spending spree of buying that dream car or house when they have received news of an imminent financial windfall. This might be immediately satisfying, but many wish they had thought more carefully before acting, as they could be making some silly mistakes from a tax or liquidity perspective. Don’t forget; the tax man usually gets his pound of flesh too. This can be tricky, especially if it’s an inheritance of physical assets or private shares in a family company.
It’s prudent to place the money in an insured savings account at a bank until the individual has established a comprehensive financial plan. Individuals should assess their long-term life goals and look at how their newfound wealth can be used to help reach these goals. For instance, a young family that won the lottery or received a significant inheritance may decide to set aside a certain portion in a college trust fund for each of their children.
Be discreet with sudden wealth
The more you talk to friends about your wealth, the more you are likely to lose it. The detail should be kept discreet to avoid friends, family and colleagues from getting jealous or greedy. Sometimes, once people become aware that an individual has come into a considerable sum of money, they may begin to treat that person differently, or ask for a handout or loan.
However, individuals can have full confidence in discussing their new financial situation with a financial planner. Finance professionals cannot disclose customer details to a third party, with Certified Financial Planners having a code of secrecy to protect their clients from outside influences. It is their fiduciary responsibility to help their clients protect and grow this sudden wealth, to maximum both medium- and long-term goals in life. Certified Financial Planners often work in tandem with accountants, solicitors and tax professionals to ensure their client’s sudden wealth lasts for as long as possible.
Need help managing sudden wealth?
Each of our financial advisers at Imperius Wealth have over 20 years’ experience working with business owners, families and retirees across Ireland and abroad, helping them plan and achieve their financial goals.
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